defeasance

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Defeasance

The setting aside by a borrower of cash or bonds sufficient to service the borrower's debt. Both the borrower's debt and the offsetting cash or bonds are removed from the balance sheet. In securities trading, where a clearing house becomes counterparty to each side of a trade, after the trade has been agreed. This is necessary to facilitate netting, and reduce counterparty risk exposure. The term has become popular recently, because of the growth of central counterparty clearing services in European cash equities markets.

Defeasance

1. A provision in a loan or bond removing it as a liability on a balance sheet if cash or a portfolio is set aside for debt service. Usually defeasance occurs when a borrower owns a portfolio of Treasury securities, the coupons of which are used to service a debt. When the borrower has set aside sufficient assets to cover the debt, the debt does not need to be recorded on a balance sheet.

2. More broadly, a provision in an agreement voiding the agreement under certain defined circumstances.

defeasance

The extinguishment of debt. While defeasance technically refers to extinguishment by any method (for example, by payment to the creditor), in practice it is generally used to mean discharging debt by presenting a portfolio of securities (usually, Treasury obligations) to a trustee who will use the cash flow to service the old debt. This procedure permits the firm to wipe the debt off its financial statements and to show extra income equal to the difference between the old debt and the smaller, new debt. Also called in-substance debt defeasance.

defeasance

The process of legal title being transferred back to a borrower once all payments and other requirements in a mortgage loan have been completed.

References in periodicals archive ?
KBRA observed that both defeasance and supplemental debt accelerated in recent years as rent and property values climbed.
More recently, defeasance continued to climb year-over-year while supplemental debt additions actually fell by 16 percent, KBRA noted.
Knowing that the defeasance process was in good hands allowed me to focus my efforts elsewhere in the overall execution of the transaction.
Defease With Ease is the market leader in the defeasance of commercial real estate loans.
The securities are typically purchased with a portion of the proceeds of a sale or refinance, so the defeasance transaction is usually coordinated with a related real estate transaction.
For example, 2005 brought the greatest recent change in real estate values, which led to a volume of defeasance that was four times greater than the previous year's and more than twice the total volume of defeasance in all prior years combined.
Chatham is extremely pleased to deliver such a large payment to our client and remains committed to educating each and every borrower that we work with on the sources of this value and how it may be returned to them," said Regan Campbell, director of defeasance services at Chatham Financial.
Chatham pioneered this transparent approach of delivering residual defeasance value, and to date has generated over $75 million to their defeasance clients.
Put simply, defeasance is a substitution of collateral.
US CMBS Surveillance Trends: Defeasance Activity Doubles' is available on the Fitch Ratings web site at www.
By combining our respective skills, ARCS and Commercial Defeasance will be better able to speed a complex transaction along," added Levine, "and to deliver that in a very cost effective way.
said "This was our second defeasance with Commercial Defeasance.